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📺 The war on Netflix

Good Monday afternoon. Straight into it today:
  • Netflix vs. cable fees.
  • Theranos case gets weird.
  • Google vs. Australia.
  • Samsung heir jailed… again.

Netflix and Bill?
Three municipalities in Georgia are suing Netflix and other streaming giants, joining a series of lawsuits hoping to revive the bane of everyone’s existence: cable fees.
The backstory. Utilities like water, electricity and cable TV usually pay 5 percent of their local revenue to cities for the ‘right of way’ to reach consumers e.g. through public cables and pipes. This franchise fee is almost always passed onto the consumer.
Now… amidst the modern-day glut of streaming services, cable TV is dying a quiet death. Over the next five years, 25 million U.S. households are expected to bid adieu to cable forever, cratering the franchise fees cities rake in.
To counteract this, cash-strapped cities are claiming streaming giants should cough up franchise fees. All the lawsuits follow a similar argument: companies like Netflix should pay a “right of way” tax because they use municipal infrastructure simply by offering video streaming services over the internet.
The cases – filed in Georgia, Texas, Indiana, Ohio and Nevada - are a little far-fetched, but the repercussions are huge:
  • Netflix made $103mn from Gwinnett County in Georgia over the last 5 years – which translates to $5.15mn in retroactive fees for that area alone.
Yikes. With the pandemic hacking municipal budgets, slapping a franchise fee on cash-heavy streaming companies is attractive.
  • Shoehorning the eyeball economy into regulations that were created for an entirely different industry, though, isn’t ideal - especially for consumers, who’ll probably shoulder franchise fees through increased subscription prices.
Bottom line: with no precedent to fall back on, it’ll take years for courts to decide whether streaming is cable’s sleeker, but equally taxable, cousin.
Zoom out. Media guru Doug Shapiro says the streaming biz will be way less profitable than what it’s replacing: traditional TV. Meanwhile, Netflix’s stock surged 17% on Wednesday.
Can’t Stop, Won’t Stop
Theranos founder, Elizabeth Holmes, has been accused by prosecutors of destroying evidence.
Refresher. Holmes became the youngest female self-made billionaire in 2015 after inventing a miracle blood test machine that could diagnose 200 conditions from a pinprick of blood.
Turns out, she lied. A 2015 Wall Street Journal expose unravelled the web of deceit spun by the Silicon Valley darling, revealing most tests never worked. After a slew of investigations, the SEC charged Holmes with “massive fraud” for fleecing Silicon Valley investors, who were charmed by Holmes’ husky voice and black turtlenecks, out of millions. Her trial is set to begin in July.
Now… prosecutors have submitted a filing accusing Holmes of destroying a database that proved Theranos’ lethargic tech had a 51.3% failure rate.
Oops, she did it again. This is just the latest saga in the hypnotic car crash that is the Holmes-Theranos downfall. If you want to slow down and gawk at the wreckage a little longer, read this book or watch this documentary
Zoom out. Holmes’ attorneys have been working overtime to downplay the scandal. They’ve argued:
  • Texts should be left out of the courtroom, including one from a Theranos lab director saying “I am feeling pressured to vouch for results I cannot be confident in.” He was fired and replaced with Holmes’ boyfriend, Sunny Balwani.
  • Everyone in Silicon Valley lies.
No Google for Australia?
Google threatened to pull its search engine from Australia on Friday.
Why? Australia is proposing a new law that would force tech companies to start paying publishers for news. The legislation follows an investigation that found Australia’s media ecosystem is on the brink of extinction at the hands of trillion-dollar tech companies who hold too much power.
In response… Google says it would have “no real choice” but to abandon Australia, while Facebook has vowed to block Australians from posting links to news.
  • Australia’s PM was quick to fire back: “we don’t respond to threats.”
Between the lines. The issue isn’t paying for journalism; Google agreed to pay French publishers for news last week. Tech bros Pichai and Zuckerberg are mad because the law requires:
  • Binding arbitration if news and tech companies can’t agree on compensation. This would lock tech giants into negotiations.
  • Transparency about how their algorithms rank news content.
Divisive. Some think Big Tech’s theatrical escalation show it “has the body of behemoth, the brain of brat.”
But independent analyst and Wall Street fave Ben Thomspon posted a scathing analysis of the law, arguing:
  1. Media companies already get substantial revenue from the traffic Google refers to their websites.
  2. Giving news companies access to algorithms will help them ‘game the system’.
Also: Google alternatives like DuckDuckGo or Bing don’t pay for news either. Then what?
Jay Back in Jail
Jay Y. Lee, leader and heir to the Samsung Group, was ordered back to prison for 2.5 years on bribery charges on Monday.
The backstory. The billionaire was first jailed in 2017 for his role in a $7.8 million corruption scandal that toppled ex-South Korean president Park Geun-hye. Lee served only one year in prison before a retrial was ordered.
Monday’s sentencing - the result of that retrial - puts Samsung’s de facto leader behind bars for offering horses to a friend of the former president to win government support for his succession at Samsung.
The ruling puts an end to a scandal that has caused uproar over the cozy (and apparently equestrian) relationship between government and business.
Sidelined. The sentencing creates a leadership vacuum atop the Samsung empire at a critical time. The conglomerate – whose shares slid 3.4% - is grappling with the pandemic, fragile US-China relations and inflamed competition, per Bloomberg.
Without the man who calls the shots, long-term decisions – like Samsung’s plan to pour money into 5G equipment to capitalize on Huawei prohibitions – will be complicated.
Zoom out. South Korea is known for having tight-knit families control the country’s powerful conglomerates, called chaebols (literal translation: wealth clique). Lee’s fate cements the country’s plans to consciously uncouple chaebols and politicians. 
  • EVgo, a charging company, is going public via a SPAC deal that brings in $600 million.
  • Amazon doesn’t have to restore Parler, judge rules.
  • Brazilian president, Jair Bolsonaro, could face charges in The Hague over the Amazon rainforest.
  • Tesla sues former employee for allegedly stealing software code.
  • French court hears Agent Orange case against chemical firms today.
  • Swiss court finds Israeli businessman Beny Steinmetz guilty of corruption in a landmark ruling.
  • EU parliament website for Covid-19 testing allegedly breaks privacy laws.
  • Caudalie, French skincare brand, is at the center of a price-fixing probe.
As weird as 2020 was, it was an exciting year for law.
We think 2021 will be even better, so have put together a collection of essays on where the legal industry is heading this year - covering legal tech to SPACs and everything in between.
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